A Performance Management Primer: Why You Need More Than a Dashboard to Manage Your Strategy

You have won funding for a new dashboard project to “communicate strategy,” but your team is struggling to create a common language to communicate, measure, and manage your strategy
across your company.

We analyze the leading performance management and quality frameworks, including the Balanced Scorecard, Performance Prism, Six Sigma, Baldridge, and commonly accepted financial and economic
indicators such as economic-value added (EVA). We offer a guide for selecting the methodology that works best for specific kinds of dashboard and scorecard initiatives.

We’ve all been there. You’re participating in a meeting with the executive team—or someone tells you about it. The CEO, CFO, CIO, or another influential person looks at the
management reports and analysis and says, “That’s it! This information is garbage! The data is inaccurate.Our teams don’t agree on what the right answer is—and I don’t
have the information I need to make decisions! No one seems to understand how their job ties in with our strategy!” The conclusion: “We need a dashboard!”

Predictably, everyone leaves the meeting with a new mandate. The finance team must determine whether the company can find the funding for this initiative. The IT team starts inviting software
vendors to perform preliminary technology reviews; and there is hushed conversation at the water cooler about “The Dashboard” and how it will solve every company problem.

You have been assigned to run this project. You work with a team to start envisioning what the dashboard can do. You may begin a rapid-prototyping project, host workshops, and conduct interviews.
You may even begin developing a working pilot so you can demonstrate the fruits of your labor to the executive team for feedback and buy-in. Everyone seems to get stuck in the details of the report
displays, but no one seems to be any happier than when the whole initiative started. Something’s missing— and you can’t quite put your finger on it.

What happened? The term “dashboard” became equivalent to “Holy Grail.” Most dashboard teams pursue the mystical, far-off goal of creating a dashboard that does everything
for everyone—providing a view of progress towards a strategy for executives, as well as monitoring and measuring operations for everyone else—without using a framework to create a
common language to communicate, measure, and manage strategy across the organization.

We address this typical stumbling block by analyzing the leading performance management and quality frameworks, including the Balanced Scorecard, Performance Prism, Six Sigma, Baldrige, and
commonly accepted financial and economic indicators such as economic-value added (EVA). We also offer a guide to the methodology that works best for specific dashboard initiatives.

Why You Need a Framework

Most people go on a diet at some point in their lives. How do most of us measure the success of a diet? Usually it’s whether we’ve lost weight. This, however, is the reason most diets
fail. Most of us forget to focus on building muscle mass and exercising more, which helps to burn fat more efficiently, which eventually really helps us to lose weight for a sustained period. In
other words, we measure what is simple to measure, not what is always important.

Most dashboards are approached the same way. We go after data that is easy to source and populate, which means we end up with a mishmash of data that may or may not be interrelated, which may not
tell a story, and which does not drive the leadership team or front-line business people to make decisions. A good example of the chaos this creates is captured in a remark from the managing
director of DHL UK about his previous performance system, which to him used to feel like “playing the numerical crosswords. … The board used to spend all of their time … trying to join up
the pieces of the numerical jigsaw they were presented with. Individual directors would be looking at performance reports trying to draw spurious correlations between different events to offer
explanations for unusual observations.” (Neely, 2003)

To prevent this confusion, your organization needs a way to tie the data and information on the dashboard to strategy, no matter what kind of dashboard you are building.

Sun Tzu in The Art of War captures the implications of the difference in approach: “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before
defeat.”

Why You Need More Than Financial Measures: The Evolution of Management Systems

Generally, teams start with financial objectives and measures for their dashboards, since this data is readily available in most companies. A recent study by Cranfield University and Hyperion
confirms this. Of 780 respondents, approximately 91 percent said their reporting and analysis focused on the financial perspective of the organization’s health. (Marr, 2004)

Financial information, of course, is of paramount importance to any organization. Before the 1970s, this was almost the only source of information used to evaluate corporate performance. During the
1980s, a significant scholarly debate occurred about how traditional valuation and accounting methods simply were out of step with the times. Several businesses and educational institutions created
new ways to assess the performance of a business with methods such as shareholder value analysis, free cash flow analysis, activity-based management, economic profit, and activity-based costing.
(Neely, 2003)

Even though these financial frameworks provided new and useful views into corporate performance, it became apparent that they lacked perspective on two fronts: (1) the drivers of these financial
outcomes, and (2) what types of non-financial measures and information should be collected. During the late 1980s and throughout the 1990s, performance management and measurement experts developed
several approaches trying to tie in the more qualitative and harder-to-measure metrics such as the Balanced Scorecard and Performance Prism. Table 1 demonstrates the implications of this shift.

Traditional PM Systems

Emerging PM Systems

Based on traditional accounting system

Based on company strategy

Based on cost/efficiency

Value-based

Trade-off for performance

Performance compatibility

Profit-orientation

Customer-orientation

Short-term orientation

Long-term orientation

Prevalence of individual measures

Prevalence of team measures

Prevalence of functional measures

Prevalence of cross-functional measures

Comparison with a standard

Improvement monitoring

Aims at evaluating

Aims at evaluating and involving

Hinders continuous improvement

Stresses continuous improvement

Table 1. Evolution of performance management systems

As a result of the clear benefits of these systems, over 46 percent of major organizations now use a “formal” performance management system. Of these, over 75 percent use the Balanced
Scorecard as their performance management approach. (Marr, 2004)

Why You May Also Need a Quality Improvement System

At the same time strategy management systems gained popularity, another brand of performance measurement system reached its apex: the quality improvement approach. Some of the most popular
approaches include Six Sigma, the Deming Prize, Total Quality Management (TQM), the Malcolm Baldrige Award, and the European Foundation for Quality Award using the EFQM Excellence Model.

In the traditional performance management environment, many companies simply maintained that there is a certain “standard” that organizations must achieve to do well. However, in
manufacturing companies in the mid-20th century, it became apparent that processes and systems would never be perfect and could always be improved or enhanced. As a result, organizations developed
these quality improvement approaches to self-assess and find where processes and systems are not as efficient or effective as they could or should be; this operations perspective is called
“continuous improvement.”

These continuous improvement methods do not compete with the performance management frameworks discussed earlier; rather, they complement them. For example, if a strategic objective in your
performance management program is to reduce costs by 5 percent, a quality improvement initiative might involve examining your manufacturing plant to increase efficiency. In fact, over 25 percent of
the companies using one of the formal performance management systems mentioned earlier also employ a formal quality methodology. (Marr, 2004)

How to Choose the Best Framework for Your Company—and Your Dashboard

Before you choose a management system, you must ask the all-important questions, “What is the purpose of this dashboard—and who is the audience?” According to TDWI’s
director of research and services, Wayne Eckerson, companies usually implement three types of dashboards: (Eckerson, 2006)

Strategic Dashboards use a scorecard interface for leaders to track performance against strategic objectives

Operational Dashboards provide an interface for front-line workers and their supervisors to monitor and optimize operational processes

Tactical Dashboards offer a system for business managers to improve their understanding of the processes and activities for which they are personally accountable

These three dashboard categories map neatly to the management systems outlined earlier. Strategic dashboards generally leverage performance management systems; operational dashboards generally use
some kind of continuous or quality improvement methodology; and tactical dashboards usually contain information from these other two types of dashboards to an individual or group perspective. Many
dashboard environments eventually evolve to contain all of these views within the same system or platform, protected by secure, role-based access to specific kinds of information.

Strategic Dashboards and Performance Management Frameworks

If you are going down the path of creating a strategic dashboard, there are several performance management frameworks you can evaluate. As demonstrated by the statistics provided earlier, an
overwhelming majority of companies are using the Balanced Scorecard to organize content in strategic dashboards. The only other method that garners some percentage of the market is the Cambridge
Performance Measurement Process (CPMP), also known as the Performance Prism. These two most-commonly-used frameworks are included in Table 2, which lists resources for more information.

The Balanced Scorecard
The Balanced Scorecard concept was created by Dr. Robert Kaplan and Dr. David Norton in 1992, and has been implemented by thousands of corporations, nonprofit organizations, and government agencies
worldwide.

The Balanced Scorecard system is:

A framework that describes and measures the strategy of an organization across four perspectives: financial, customer, internal processes, and learning and growth

A communications system that bridges the gap between goals set by our leaders and members who are ultimately responsible for achieving these goals

A measurement system that reports on past operating performance and the drivers of future performance

A process for implementing and managing organizational change

In the Balanced Scorecard system, a Strategy Map provides a one-page view of the strategy of an organization. In a for-profit situation, the organization always starts with the financial goals
(since increasing shareholder value is our reason for being), looks atcustomer outcomes, and examines the drivers of these outcomes (internal processes and learning and growth).

Each circle or bubble on the Strategy Map in Figure 1 represents a strategic objective of the organization. Underlying each objective, organizations maintain measures (how performance against
objectives is monitored), targets (the required level of performance or rate of improvement), and initiatives (action programs to achieve targets). Most organizations also follow annual operating
plans related to—but distinct from—these measures, targets, and initiatives.

Figure 1. Strategy Maps: Providing a one-page overview

The Balanced Scorecard Collaborative, the research and education division of Palladium Group, Inc., certifies software vendors who sell configurable software for dashboards that contain Balanced
Scorecard content. These vendors are a good place to start if your organization is looking to roll out the most commonly accepted strategic dashboard framework using a software platform. Some of
the larger certified vendors, as of mid-August 2006, include Business Objects, Cognos, Microsoft, Oracle, PeopleSoft, SAP, and SAS.

Performance Prism
Performance Prism creators Andy Neely and Chris Adams maintain that the better-known Balanced Scorecard framework only focuses on two sets of stakeholders: shareholders and customers. Neely and
Adams assert that the Performance Prism allows organizations to think about all of their stakeholders and how organizations can deliver value to them. In the Performance Prism framework,
stakeholders include: activists, communities, consumers, employees, legislators, regulators, and suppliers. (See Figure 2.)

Within this methodology, practitioners focus on five major areas:

Stakeholder Satisfaction: Who are the key stakeholders? What do they want and need?

Strategies: What strategies does the organization need to put in place to satisfy the wants and needs of these stakeholders?

Processes: What critical processes does the organization need to put in place to satisfy these strategies?

Capabilities: What capabilities does an organization need to operate against and to enhance these processes?

Stakeholder Contribution: What contributions does the organization need from its stakeholders to maintain and develop these capabilities?

The Performance Prism is where the Balanced Scorecard was several years ago in terms of preconfigured software to set up a dashboard to display this methodology—for example, no software
vendors are “officially” certified or offer templates for a “quick start” with this framework.

In this situation, your company may choose to build a custom dashboard if you choose to use Performance Prism.

Operational Dashboards and Performance Management Frameworks

Many dashboard environments eventually evolve to contain the strategic, operational, and tactical views within the same system or platform, which means that quality or continuous improvement
frameworks often end up getting integrated into dashboards in conjunction with the performance management frameworks described above. Industry research demonstrates that the most commonly used
framework is Malcolm Baldrige, which is one approach to doing TQM, while the Six Sigma continuous improvement process also continues to grow in popularity. (Marr, 2004) These two better-known
continuous-improvement frameworks are described in more detail below.

Total Quality Management Movement Background
There is some disagreement about who is the “father” of the TQM movement. Armand Feigenbaum, an American quality control expert, worked at General Electric and wrote a seminal book on
this topic, Total Quality Control (1961). Edwards Deming, an American statistician based in Japan, improved production in the U.S. during World War II and then took his concepts to Japan
in the 1950s, where he spent the rest of his career.

The International Organization for Standardization (ISO) defines TQM as “A management approach of an organization, centered on quality, based on the participation of all its members and
aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society.” There is no one mandated process or procedure for implementing a
TQM program.

Malcolm Baldrige National Quality Award
In the case of companies implementing both quality- and strategy-management systems, Baldrige seems to be the system of choice. The Malcolm Baldrige National Quality Award was created by Congress
in 1987 to recognize U.S. organizations for their achievements in quality and performance and to raise awareness about the importance of quality and performance excellence as a competitive edge.

The Award is named for Malcolm Baldrige, who served as Secretary of Commerce from 1981 until his tragic death in 1987. His managerial excellence contributed to long-term improvement in efficiency
and effectiveness of government. The Baldrige Award is given by the President of the United States to businesses and education and healthcare organizations that apply and are judged to be
outstanding in seven areas, as outlined by the National Institute of Standards and Technology: (www.nist.gov)

Leadership: Examines how senior executives guide the organization and how the organization addresses its responsibilities to the public and practices good citizenship

Strategic planning: Examines how the organization sets strategic directions and how it determines key action plans

Customer and market focus: Examines how the organization determines requirements and expectations of customers and markets; builds relationships with customers; and acquires, satisfies, and
retains customers

Measurement, analysis, and knowledge management: Examines the management, effective use, analysis, and improvement of data and information to support key organization processes and the
organization’s performance management system

Human resource focus: Examines how the organization enables its workforce to develop to its potential and how the workforce is aligned with the organization’s objectives

Process management: Examines aspects of how key production/delivery and support processes are designed, managed, and improved

Business results: Examines the organization’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, human resources,
supplier and partner performance, operational performance, and governance and social responsibility; the category also examines how the organization performs relative to competitors

Several software providers sell products that allow Baldrige examiners to track a company’s progress, and some even offer solutions to allow a company to do the same thing internally. For the
purposes of this article, the most commonly used software to create dashboards to track these process improvements in an operational dashboard continues to be leading business intelligence or
corporate performance management software such as that from Business Objects, Cognos, and Hyperion.

Six Sigma
The roots of Six Sigma originate in the thinking of mathematician Carl Frederick Gauss (1777-1855), who introduced the concept of the “normal curve,” and in the thinking of statistician
Walter Shewhart during the 1920s, who demonstrated that “three sigma from the mean is the point where a process requires correction.” The term “six sigma,” however, was
developed by a Motorola engineer named Bill Smith in the 1980s. Motorola engineers also defined the modern version of Six Sigma in the 1980s; they decided that they needed a method to start
measuring electronics manufacturing defects per million opportunities, as opposed to per thousand opportunities. (www.isixsigma.com)

Proponents of Six Sigma believe this system differs from other TQM methodologies because it’s more than a quality system—it’s a way of doing business. Six Sigma proponents believe
that if the number of defects in a process are measured, these defects can be systematically eliminated. For a company to achieve Six Sigma excellence, it cannot produce more than 3.4 defects per
million opportunities (an opportunity is defined as a chance for nonconformance).

Six Sigma process is composed of two major steps:

Define, Measure, Analyze, Improve, and Control (DMAIC): A process to investigate existing processes that do not meet the Six Sigma specifications

Define, Measure, Analyze, Design, and Verify (DMADV): A way to examine new products or processes intended to achieve Six Sigma quality goals

Like the Baldrige award, there is a whole industry built around certifying people and companies according to expertise in this process. Motorola created a set of terms to designate expertise in
this arena, starting with newcomer “Green Belts” all the way to “Master Black Belts” who are considered Six Sigma gurus. Also like Baldrige, many of the corporate
performance management software vendors are probably the best companies to start with if you want to implement Six Sigma principles within a larger corporate operational and strategic dashboard
environment.

The Art of What’s Possible: A Dashboard Case Study

After reading so many suggestions about what frameworks are appropriate for each type of dashboard, you may be asking, “How do I translate this to my current dashboard project?” A
real-world example from an integrated financial services company may help illuminate this opportunity.

Performance Management Process Background
From a process perspective, this company uses the Deming cycle (the same Deming mentioned in the evolution of the TQM movement earlier in this article) as the basis for its strategy planning and
execution, along with Six Sigma as its continuous improvement process.

Figure 3. The Deming Cycle

During the plan stage, the company sets a three-year strategic plan for each line of business, with a focus on vision and strategy (e.g., new product introductions, acquisitions,etc.)
Company-wide initiatives are aligned to strategy and pushed down to business units to do the work. This work is performed through translation into an annual operational plan, with specific
targets. This plan is checked through a quarterly adjustment of the current plan.

Six Sigma is often used to help translate strategy into measures and initiatives, and any initiative that is company-wide or exceeds an established budget is required to be managed through the Six
Sigma framework.

Initiative Management
During a recent strategic planning process cycle, this company identified one of its strategic objectives as increasing the efficiency and effectiveness of the finance group in supporting
near-real-time business decisions. An initiative that resulted from this objective focus was to shorten the time to close their corporate books each quarter, which became a Six Sigma project.

Within this Six Sigma initiative, four measures were of primary importance: cycle time (the number of days it takes to close the books), data accuracy (the amount of time spent editing the
financial information), finance productivity (the number of hours spent per activity), and simplicity (ease of use of the financial information).

This continuous improvement process demonstrated that much of the inefficiency was due to lack of a centralized place to distribute accurate financial and corporate information—which is where
your dashboard project finally comes in. This company decided that creating a dashboard would go a long way towards solving the issue of access to—and distribution of—this important
corporate information.

Figure 4. Financial close objective cascade-process map

Dashboard Architecture and Uses
Using the strategic plan as a starting point, this company created strategic and operational views for senior executives, business line leaders, and the finance team. The dashboard opens onto a
view of progress towards certain objectives in the strategic plan, and then allows users to drill down to financial data underlying several of these goals (part of the dashboard is omitted for
confidentiality).

The result of the combined power of Six Sigma, a formal strategy planning and management process, and communication and measurement of this information through a dashboard resulted in many
significant “wins” for this organization related to the initiative:

Eliminated 95 percent of non-value-added process steps

Reduced data consolidation effort by 50 percent

Reduced report creation effort by 65 percent

Automated 280 reports

Reallocated two full-time employees to more productive roles

Achieved a two-day financial close

Figure 5. Dashboard financial information view

The Bottom Line

What can you take from this discussion?

First and foremost, return to the basic questions: “What is the purpose of this dashboard and who is the audience?” If you cannot answer these about your current initiative, step back
and do so. If you can answer both of these questions, you do not need to halt the project if you aren’t currently using an official system or framework. Many teams spend time reviewing a
handful of different frameworks and take what they like from each approach.

These concepts should, at a minimum, drive what data you collect and how you visually structure this information for the dashboard’s audience. As American clergyman Harry Fosdick so famously
said, “He who chooses the beginning of a road chooses the place it leads to. It is the means that determine the end.”